SunTrust Settles In Probe Into Mishandled Home Loan Modifications

Atlanta-based SunTrust Mortgage Inc. has agreed to pay up to $320 million to resolve criminal allegations that it mishandled applications from homeowners seeking loan modifications under a federal program.

The settlement involves the 2009 Home Affordable Modification Program, or HAMP, which was designed to stem the tide of foreclosures sparked by the collapse of the housing market and the recession.

But Attorney General Eric Holder said in a statement that "[i]nstead of helping distressed homeowners, SunTrust's mismanagement drove up foreclosures.

"This resolution will provide much-needed restitution for victims. It will make available substantial funds to help other homeowners avoid foreclosure," Holder said.

U.S. Attorney Timothy J. Heaphy said that "[u]p to $284 million will be paid in restitution directly to the victims of SunTrust's conduct. SunTrust will also establish a $20 million grant fund which will be distributed to agencies working with distressed homeowners and provide $16 million in asset forfeiture funds that will be used by law enforcement for future mortgage fraud investigations."

The Wall Street Journal cites court documents alleging that officials at SunTrust promised to review HAMP applications within 20 days, but often took longer than a year.

According to WSJ:

"SunTrust 'did not have adequate personnel, infrastructure, and technological resources in place to process the paperwork, render decisions, and communicate with and about borrowers as represented,' the government said.

"The bank left 'piles of unopened homeowners' HAMP applications in a room,' with the floor buckling under the weight of documents, said Christy Romero, special inspector general for the Troubled Asset Relief Program. 'SunTrust so bungled its administration of the program, that many homeowners would have been exponentially better off having never applied through the bank in the first place,' Ms. Romero said.

"The bank also misreported whether borrowers were delinquent to credit bureaus, damaging their credit scores, the government said. 'As a result, borrowers incurred increased costs, such as higher interest rates when applying for credit,' the government said, as well as higher insurance costs and lost job opportunities.

"A spokeswoman for SunTrust said the bank, in recent years, has made 'significant improvements to our mortgage servicing unit's processes and internal controls, including those in our home retention area.' SunTrust acknowledged the issues highlighted by the government but didn't admit to liability, a spokeswoman said."

Heaphy, U.S. attorney for the western district of Virginia, said in a conference call quoted by Bloomberg that SunTrust's conduct since 2010, including changes in leadership, helped it avoid prosecution.

"The conduct really was mismanagement rather than affirmative fraud," Heaphy said. "No one said, 'To hell with the customers.' "